B of A High Yield Broad Market Index up 0.08% on week; 2008 loss narrows to 24.43%

By Paul Deckelman

New York, Nov. 3 - The Banc of America Securities High Yield index rose by 0.08% in the week ended Friday, breaking a skid of six major losses in as many weeks, including the 1.56% retreat seen in the previous week, ended Oct. 24.

The latest week's gain, however small, caused the index's year-to-date loss to decline slightly to 24.43% from the previous week's 24.49% - its deepest deficit so far this year. In contrast, the index's peak level for the year was a 1.86% cumulative gain seen over the two weeks ended May 16 and May 23.

The index showed losses the first three weeks of the year and continued in that negative trend most weeks through mid-March, but then nosed upward with seven straight weeks of gains through early May. After that, it turned choppy and inconsistent for several weeks, alternating gains, losses, and one week that saw neither a gain nor a loss but a flat 0.00% reading. But more recently, the index has shown 14 losses in the past 21 weeks, including the latest six and another five straight from mid-June to mid-July.

With 44 weeks now in the books, there have been 19 weekly gains, 24 losses and the one unchanged week.

Spread edges downward

B of A analysts said the index's average spread over Treasuries inched downward to 1,604 basis points from 1,605 bps the week before, the wide point for the year so far.

The spread's tightest level of the year was 651 bps in the week ended June 13, although even then, this year's spreads have been notably wider than the 613 bps seen at the end of 2007.

The index's yield to worst meantime rose to a new 2008 high of 18.92% from 18.77% the week before, the previous high for the year. The 2008 low was 9.98% in the May 16 week.

The index tracked 1,547 issues of $100 million or more, up from 1,546 issues the week before, although its overall market value declined to $434.3 billion, a new low point for the year, from $437.9 billion the week before, the previous 2008 low total.

The index's total value thus moves still further below the 2007 year-end total of $595.3 billion, to say nothing of its peak level for this year at $614.9 billion in the May 23 week. B of A sees the index as a reliable proxy for the high-yield universe, which by some estimates is valued at around $1 trillion.

By the ratings categories for the three major baskets of credits into which B of A divides the index (excluding the relatively small group of unrated issues), with all three groups once more finishing in the red, the CCC rated credits had the smallest loss, down just 0.17%, followed by the BB rated bonds, which fell 1.59%, while single-B rated paper did the worst, relatively speaking, with a 1.66% loss.

That stood in contrast to the week ended Oct. 24, when the CCCs lost 3.70% and the BBs were down 1.72%, while the single-Bs showed only a 0.44% loss - the fifth consecutive week in which the CCC bonds had lagged the other two groups, and the second straight week in which all three had finished in that particular order.

Negative sectors rule

In the latest week, 26 of the 38 active industry sectors into which B of A divides its high-yield universe finished in negative territory, with 12 sectors in positive territory, for a seventh consecutive week of negative dominance, although it was not quite so overwhelming as in the previous six weeks, including the Oct. 24 week, which was the second consecutive week for a 33-5 negative split.

At the beginning of the year, most weeks saw negative sectors dominate, but the breakdown essentially evened out after that. To date, sectors have shown more gains in 19 weeks, more losses in 24 and were evenly split one week.

Insurance brokers week's worst sector

Among specific sectors, insurance brokers had an index-worst loss of 7.49%, taking over as the cellar-dweller from the real estate sector, which had lost 8.72% in the previous week. However, real estate remained among the Bottom Five worst-performing sectors in the latest week with a 6.85% loss.

Consumer durables/non-automotive (down 6.14%), metals and mining (down 4.95%) and gaming, lodging and leisure (down 4.68%) rounded out the latest week's Bottom Five list. It was the second straight week there for consumer durables/non-auto, which also had that unwanted honor the previous week with a 7.53% loss.

Autos week's best sector

On the upside, automobiles accelerated by 16.31% in the latest week to take the top spot away from the diversified telecommunications sector, which had been the champion in the Oct. 24 week with a 4.83% gain. Autos were helped by the continued speculation that General Motors Corp. might be able to buy rival Chrysler LLC and thus bolster its own cash position by more than $11 billion - although those expectations seemed to have faded as the week ended and Washington indicated that it would provide no direct aid to such a merger. They also gained as GM's 49%-owned GMAC LLC financing unit, as well as Ford Motor Co.'s financial arm, and Chrysler's, got approval to participate in the Federal Reserve's new commercial paper facility, allowing them to issue short-term debt in the previously frozen market.

Diversified financials (up 9.59%), credit insurance (up 7.95%), banks (up 3.89%) and aerospace and defense (up 2.60%) rounded out the latest week's Top Five list of the best-performing sectors. It was credit insurance's second straight week among that elite group; it made it the previous week as well with a 3.61% gain. Banks have now been among the Top Five in two weeks out of the last three and in three weeks out of the past five.

Real estate year's worst sector

On a year-to-date basis, repeat Bottom Five finisher real estate's weekly loss caused that sector to tumble three positions to the bottom of the pile from just fourth-worst previously, as its 2008 deficit widened to 44.05% from 39.93%.

Also moving down in the standings, to second-worst from third-worst the week before, was advertising-dependent media, whose loss widened to 42.34% from 40.40%. It traded places with Top Five finisher banks, which moved up one notch to just third-worst as its 2008 loss declined to an even 39% from 41.28%.

Bottom Fiver gaming, lodging and leisure - not previously among the worst laggards - fell to fourth-worst on the year, its cumulative deficit growing to 36.94% from 33.84% previously.

Autos, previously the absolutely worst-performing sector on the year, rode their big index-best weekly performance to a new position as just fifth-worst on the year, with the group's 2008 red ink level improving to a 35.90% loss from 44.89% the week before.

Top Fiver diversified financials, previously fifth-worst, managed to break away from the worst 2008 losers altogether, as its year-to-date loss narrowed to 29.04% from 35.26% the week before.

Health care equipment tops for year

On the upside, with all sectors showing year-to-date losses for a fourth consecutive week, health care equipment and services moved up one position in the rankings and took over as the best year-to-date performer - that is, the one with the smallest cumulative loss - as its loss widened only slightly to 8.19% from 8.14%. It displaced the previous leader, insurance brokerage, whose index-worst weekly loss caused its year-to-date deficit to more than double to 12.42% from 5.32%, with the sector falling four slots, to just fifth-best on the year.

Top Five finisher aerospace and defense, not previously among the leaders, jumped into the vacant number two position, as its 2008 loss narrowed to 9.65% from 11.94%. Close behind was another Top Fiver not among the previous leaders, credit insurance, which jumped to third-best as its loss declined to 9.66% from 16.31%.

Food and drug retailing, the previous number three, lost one notch as it fell to fourth place, its loss widening to 11.69% from 9.49% the week before.

Entertainment, previously fourth-best with a relatively modest 9.84% loss and health care services, previously fifth-best with a 10.63% loss, both fell from leadership contention altogether, as their year-to-date losses widened to 12.91% and 13.19%, respectively.

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